Exchange Rate Forecasts

Exchange rate forecasts: Euro dollar exchange rate expected to resume downtrend; USD to return to strength

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Published on Friday, 27 January 2012 12:25

Written by Will Peters

With regards to the pound sterling, more liquidity injections by the BoE in early February will prevent further sterling strength.

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The euro dollar exchange rate is currently 0.29% higher, EURUSD continues its good run and finds itself at 1.3144 as we head into the final session of the week.

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An exchange rate forecast note from the currency and rates team at UniCredit has forecasted the euro to resume its downtrend against the US dollar, noting that the recent rally is mere euphoria generated by the US Federal Reserve.

"Next week, foreign exchange majors will thus focus more closely on the EU leaders' summit (on Monday) and on PSI talks rather than on US economic data," says the exchange rate forecast note from UniCredit.

With regards to the pound sterling, more liquidity injections by the BoE in early February will prevent further sterling strength.

For those looking for trade strategies, UniCredit say:

"Selling USDJPY into a rally is also favoured as long as the 78.35 area holds.

"EUR-CHF at ca. 1.2050 still offers a great opportunity to return long.

"We recommend a tactical switch from short EUR/EM to short USD/EM. In this respect, we switch our short EUR/TRY (already 4% in profit) to short USD/TRY."

Looking into the week ahead, it is noted that the US dollar does not look favourable at present, since the Fed surprised markets with its assessment that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

However, as mentioned, UniCredit are backing US dollar strength:

"But given our anticipation of a weaker-than-expected US unemployment report, the US currency will unlikely resume its path of strength for the time being."